Income Tax – damages paid for non-fulfillment of contractual obligations – allowable expenditure – But, any sum paid for infraction of law, not allowab

Whenever an assessee has indicated any amount, which had been paid either by way of damages or penalty, to be an allowable expenditure under Section 37(1) of the Act, the Assessing Authority is obliged to discover the nature of such amount vis-a-vis two prominent aspects, whether it is compensatory or penal. The Assessing Authority would there upon permit the amount as an allowable deduction that may be discovered to be purely of compensatory nature as payment for damages. However any statutory amount paid by the assessee which is sought to be claimed as an allo

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